Question 1

Consider an asset which pays continuous dividend.  Let  S= $100 and r=10%. 

Suppose the 6-month futures contract of this asset is trading at $102.02.

a) Calculate the "implied" dividend yield ( q ).  [i.e. the value of  q that the traders expect in the next 6 months.]

b) Suppose you believe that the correct  q should be 2%, what should you do in order to make money?

c) If 3 months later,  S = $80 and the "implied" q= 2%, based on what you do in b), how much money will you make?

d) If 3 months later,  S =$120 and the "implied" q= 2%, based on what you do in b), how much money will you make?

Question 2

  Let r= 10%  S= $100

6 month 110 call =$9.44,   6 month 100 Put =$4.66

Find the price range such that you make money under each of the following cases.

a) long 1 share

b) long 1 6-month 110 call (each option is on 1 share)

c) write 1 6-month 110 call (each option is on 1 share)

d) long 1 6-month 100 put (each option is on 1 share)

e) write 1 6-month 100 put (each option is on 1 share)

f) long 1 share + write 1 6-month 110 Call (each option is on 1 share)